Wednesday, June 16, 2010

Bank Run in Spain and Its Destabilizing Ramifications for the Entire EU

Spanish banks are borrowing record amounts from the European Central Bank.

According to FT, Spanish banks borrowed €85.6bn ($105.7bn) from the ECB last month. This was double the amount lent to them before the collapse of Lehman Brothers in September 2008 and 16.5 per cent of net eurozone loans offered by the central bank.

“If the suspicion that funding markets are being closed down to Spanish banks and corporations is correct, then you can reasonably expect the share of ECB liquidity accounted for by the country to have risen further this month,” said Nick Matthews, European economist at RBS.

Bottom line: This is nothing but a sign of a run on Spanish banks. They can't get funding in the markets and there is a steady withdrawal of funds from the banks. For all practical purposes, the ECB is supporting the Spanish banking system with life support measures. This means that the ECB will have to drain funds from elsewhere in the system to sterilize this rescue operation. Without sterilization the effort becomes very inflationary, with sterilization the effort distorts the entire EU economy. It's all destabilizing.

The only reasonable alternative is to allow the Spanish banks to go into bankruptcy and restructure.

Stupid and irresponsible post. You deserve a criminal case. Liquidity problems have happened before, the banks simply do not trust each other and they deposit and raise on the ECB. And that doesnt mean that banks are in trouble

There's no fucking liquidity crisis, just like it wasn't in the US; it's an insolvency crisis.

Our US friends have seen this movie already.Even after raping the tax payer AND their children the trillions the banks have stolen isn't enough. The banks said that these assets(MBSs, CDOs etc.) are illiquid(which is a code-word for being insolvent if you sell these assets for what the market will pay for them). What the government did next is extraordinary; it legalized fraudulent accounting; the banks are no longer required to mark to market, they can just make up any price they like.

Every single bank that has failed in the US had huge losses. The FDIC is supposed to take over BEFORE the bank starts eating into depositor's money; but most of these banks had lost 10-50% of the money deposited. In other words the banks are lying like fucking swine.

Why won't banks lend to each other? They know what trash they have on their balance sheet and they believe other banks are just as insolvent!

I have a few friends from Spain. All of the people there endlessly blame speculators. It is like a default switch.

Andrew, if he is speculating, who cares? Anyone who takes a peek inside can see that the Spanish economy is a mess. There is a reason for the negative speculators.

Should we lash out and ban those investing in Spain with a positive look on Spain's future? Are they not speculating as well?

What you seem to be forgetting is that if they are wrong, then nothing will happen to Spain and the speculators go broke. If they are right, then they have helped the market realign itself to its proper functioning level.

Speculation is when SOMEONE BUYS A PRODUCT and SELLS IT TO A THIRD CLIENT and IMMEDIATELY RUN TO SPREAD A FABRICATE FALSE RUMOR TO LOWER THE PRICE AND RE-SELL AGAIN TO THE VENDOR FOR A LOT LESS MONEY and REAP THE BENEFITS.

The examples you set are only MERCANTILISM, which is very different and legal.

In this link you can clearly check for yourself what is the Spanish situation respect to other countries and see how his theory is nothing but pure speculation:

The New World order antichrist beast system will be collasping all the European Union in the very near future. As they are Luciferian International Bankers who are creating their One World Government; so that you will be worshipp8ing their father Lucifer. But the price for that will be very very high and eternally agonizing in the very near future!!

Dear all,Over the last one or two decades all the so called boom/growth in GB(where I live)and other western countries, was created by way of easing the availability of money/credit-pumping more and more money into the system. It wasn't created by Manufacture-toil-ingenuity-inovation. In other words it was done with money that didn't exhist when it started. This appears to work (even to so called experts), BUT, When that time ends (now) see next comment

continued: somebody,somewhere,somehow, has to pay for it.LOOK AROUND! If you or I printed money we would be arresed, rightly so. But (international) BANKS do this all the time yes, hard to believe isn't it. I predicted throughout the 'BOOM' that soon we (hay, not all, oh no!but most) will have to pay for it and lo and behold..... ding-dong!!!! more later,Ta.

Speculation is whenever you invest in something you expect to rise in value. The characteristic attribute of speculation is that the speculator takes a risk. If he makes a mistake and his expectation is wrong, then he loses out. That is the risk. The opposite to a speculator is a hedger. That's a guy who wants to eliminate or minimise his risk. He is prepared to pay a premium to the speculator to assume some or all his risk. You can't have one without the other.

The process you described is but one variety transaction known as a short. It is by no means the only one. It is by no means the only form either.

Let's say I sell taro to Villiami for 20$ per kg. He puts it in his larder. Now I run around the village and tell everyone that the taro is rotten. Now I come to Villiami a few days later and tell him his taro is now worth $5 a kg. He might decide to sell it to me. I make $15 per kg when I reveal to everyone the taro is good after all and sell those taros at $20/kg again. On the other hand, Villiami, he might decide not to sell. Instead he goes out and shows the taro to the village elders who see the taro is OK. They tell everyone. He can sell it for $20 / kg or maybe a little more after all. He might decide to cook it and charge people to buy his cooked taro at $30/kg. So, I can't buy back the taros cheaper at all. Basically that's because of two things.

#1. Villiami knows the taro is not rotten. And he can reveal that information to the whole village market easily. Then my strategy is stuffed because the trash talk I put around the village is revealed as bad information (it will also hurt my reputation if I keep doing it and soon no one will listen to me any more).

#2. Villiami has the choice whether to sell or not. He can always keep the taro for himself until the price gets better or just to consume.

There is another scenario. This one is that the taro really is rotten like I say. In that case the way I make money is to tell another guy I know, Siotu, that although the taro is worth $20/kg right now, I can get it for $15/kg and bring it to his place next week. So he pays me $15/kg and the deal is done. Then I tell everyone the taro is bad. Villiami can't get out of it because he knows it is true what I am telling. I go to him and buy the lot at $5/kg. He is happy to be rid of them. I get to make $10/kg and Siotu gets his taro. He has a problem because they are off though.

The point is that in the end it is the truth of reality that ultimately is the arbiter (the taro rotten or it is not). That and the decisions each person makes in their transactions (which is part of reality). Buy, sell or hold.

Right now the Spanish banks are rotten pork. The Euro is decaying. The PIIGS are flyblown dead meat. The North European banks are a putrid pool of mushy stuff with worms (especially the Frenchie ones).

Us guys are going to short you hard because your whole political and economic system is soooooooo rotted we can smell you right from all the way over here, in the village in the Pacific. Pooh! Pooh!

Get used to it fella. Soon you are going to be working very hard for your food as well as paying off a lot of debts.

Mercantilism is when a country erects trade barriers by regulation, legislation and policy in order to favour some organisations (govt cronies) over others. In the case of Europe the banks are a very good example. Look around you . All your money has been nationalised and it is all debt.

[noun] a hypothesis that has been formed by speculating or conjecturing (usually with little hard evidence); "speculations about the outcome of the election"; "he dismissed it as mere conjecture" Synonyms: conjecture .

[noun] an investment that is very risky but could yield great profits; "he knew the stock was a speculation when he bought it" Synonyms: venture .

“Right now the Spanish banks are rotten pork. The Euro is decaying. The PIIGS are flyblown dead meat. The North European banks are a putrid pool of mushy stuff with worms (especially the Frenchie ones).

Us guys are going to short you hard because your whole political and economic system is soooooooo rotted we can smell you right from all the way over here, in the village in the Pacific. Pooh! Pooh!”

You are not jus speculating but pathetically. You have no clue ABOUT SPAIN AN EUROPE and lie like a moroccan merchant. Pooh! Pooh!

Of the trillions that were injected into the US economy, how much found it's way to main street? Zilch. It's still in the hands of bankers. Why? Put yourself in a bankers shoes, one who knows that if he has $1, he can lend out and profit on $9. If he opts to hold it instead of loaning it out, it is because he knows his balance sheet is still deeply in the red, or could soon be, if there is a global margin call.

They know they are insolvent. It's a matter of time till the little people realize it.

Andrew - I understand your frustration... it's tough wanting to be right but sadly mistaken. The EU will Fall and France/ Germany will run away with it all. Best of Luck and I would get some guns or swords or whatever and start growning food where ever you can and fast!

BRUSSELS: Spanish Prime Minister Jose Luis Rodriguez Zapatero on Thursday slammed what he called "all these unfounded rumours," referring to reports Madrid was preparing a request for bailout aid or that its banks were insolvent.

"There is nothing better than transparency to demonstrate solvency to give confidence and to leave behind us all these unfounded rumours," Zapatero said after highlighting a decision by all 27 EU leaders to follow the Bank of Spain's lead by making public stress tests on "all our finiancial institutions."

Actually you can eat gold, but that's unimportant. The entire reason this paper scheme is coming unglued is because it isn't founded upon anything but faith. A form of insanity actually, and it is easy enough to review the consistant thievery by the central banks in dollar devaluations on all currency throughout the world. The US dollar is now worth about 25% of a 1960 dollar. Example, the average wage in the US in 1960 was 4K, which equated in to 2,000 ounces of silver. Hmm...interesting that it would take over 100K to purchase the same amount of silver coinage in the US today. Yet again, the average wage in the US last year was 40K, so who's saying idiotic things like gold and silver isn't money? Well, bankers and fools is what I'm thinking. Anyways, maybe Europe will luck out and the US or China will invade.

To Andrew: You better get a freakin grip. You are either divorced from reality, or you are a shill. Now which one is it. Spain is the equivalent of the Titanic, and you are trying to re-position the deck chairs....GIVE IT UP ALLREADY! The game is over period!

Forget trading. Yep it is immoral, but it is comes after the lunatic horse has kicked the door and bolted. The root couse of the present monitary problems is ,and always was, the actions of the unseen faceless handfull of people who control governments by how much money they allow to enter the system: Your an individual, you need money: go to bank-bank gives you £1000000000-bank has used all its money-bank goes to imf-imf gives bank lots more-bank lends more-imf runs out of money-goes where?-somebody gives it-who owns imf?,well, a collective of countries, including banks of country asking for the money in the first place. THE MONEY IS JUST PRINTED AND/OR, TYPED IN TO A COMPUTER. The more money you just pump into an aconomy, the more you divalue and inflate it. This insanity allows those few entities/people to control governments and their economies in this way. It works very well (FOR THEM) as you are now witnessing. More soon, Tanks,Cog.

if, and only if, the account about runs on Spanish banks is true, (notice my qualification), then it wold appear that the race to the bottom, of currencies in general, is now accelerating. this means that a partial shut down is imminent. bad for savers with much of their assets being represented by paper. at this point, I would be backing up the truck and getting my hands on as much physical SILVER as I could afford. (Gold at this point is slightly 'expensive' due to its run up + Central Bank control; Central Banks historically have had no interest in SILVER). but that's just me and what do I know?

Your insight is helpful as it is one that isn't presented anywhere else on the Internet ... "This is nothing but a sign of a run on Spanish banks. They can't get funding in the markets and there is a steady withdrawal of funds from the banks. For all practical purposes, the ECB is supporting the Spanish banking system with life support measures. This means that the ECB will have to drain funds from elsewhere in the system"

I say yes to all that you wrote; but we live in a real world and your solution simply will not happen ... "only reasonable alternative is to allow the Spanish banks to go into bankruptcy and restructure" ... this is not in line with what is going to happen.

The fact that Spanish banks are turning to the European Central Bank as a lender of last resort documents that a sovereign central bank exists in the eurozone and that a centralized and unified government is in place in Europe. Spain has lost its banking and commercial credit sovereignty: credit comes from the ECB, and Mr. Trichet is Spain’s Banker and Credit Officer.

Spain has a large industrial base including "white goods", electronics, chemicals, household goods and building materials, to name but a few. Tourism only accounts for about 10% of GDP (It is the 2nd country in the world in tourism revenue). Spain produces 250% more cars than the UK, is a major partner in airbus, some days upto 70% of electric energy is produced by renewable systems. Oh yes, and the 2nd (and probably in a few years 1st) Bank in the UK is Spanish. The first bank in capitalization in Europe is the Spanish bank of Santander - quietly takes over and reorganises the third rate banks in the UK. Offer for 300 branches off RBS today? Interesting also to note that Spain (like France), in general, doesn't have toxic loans. Remember toxic loans? That's the loans that the borrower had no chance of repaying and the UK banks were given taxpayers money to replace thus precipatiating the recession, which the banks promptly put in their back pockets or paid out as dividend and set about bankrupting all the borroweres they could throttle. Anybody noticed the rate of personal bankruptcies in the UK of late?. I also do so like the way the UK fills every available bit of land with tarmac and then the aggressive and unpleasant Brits slag off all the agricultural countries in Europe. It's what you call having a keen eye to the future.

The problem of Europe is that it operates a currency of government fiat money under the auspices of a government run central bank system. That is, Europe has a socialist monetary system. As with all forms of socialism, this will fail. The only uncertainty is how and by what means it eventually blows up and fails- when and how bad.

Europe's political and economic system is rotten right through the middle. What I'm doing is betting on when the skin breaks open, releasing the putrifcation into the air and revealing the rot so obviously that everyone can see it and no-one can deny it. It's merely a matter of time. As I said previously, we can smell it here already.

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You appear to place faith in some declared economic indicators of sections of the Spanish productive and banking sectors. That's all very well and looks quite nice until you recognise some facts:

1/. The magnitude of debt and economic dislocation government has foisted upon the country dwarfs the ability of the productive sector to service it, let alone ever pay it off. Hence the size of the productive sector in Spain is now irrelevant to the process you are in the early stages of experiencing.

2/. Reported economic data and calculation in the Eurozone is ultimately based and denominated in Euro. Euro is fiat currency. At any time government's central bank creature can (and does) conjure up new Euro thingies out of thin air. Hence the Euro is inflated and its value decreased by arbitrary government whim. That's hugely destructive of savings and real wealth. A significant magnifier of this distortion is that the banking system in the Eurozone is of the type known as fractional reserve. What this all means is that you can't rely on Euro as an accurate means to reveal economic value. This is but one of a series of reasons to understand that reported economic data in the Eurozone is likely to be inaccurate fiction. Beware what your banks and governments and "economists" report- it's misleading.

3/. The productive sector of the Spanish economy can only remain productive if customers are available to purchase its goods and services. That they will remain so, in sufficient quantity, is open to question.

4/. Spain, as with the rest of Europe, has an essentially socialist political and economic system. This means it suffers from, and will continue in increasing measure to suffer from, the results of the insolvable socialist calculation problem.

5/. The survival of industry requires the accumulation of capital. That is, it requires that a real pool of savings exists. In Europe that pool is near exhaustion.

My present expectation is that Europe is about to experience a significant economic downturn ofsuch a seriousness that there will be unrest and nationalistic disturbances, even violence. Unfortunately for you, there is no way to avoid a major restructuring and dislocation of your economy. There are going to be some really difficult times ahead. As I said, prepare to really work for your food. Prepare to pay off at least some of the debts that your rulers racked up in your name. They are your responsibility now and they are going to restrict your standard of living and limit your economic expectations.

Final point. If you really are interested in understanding what is happening and, more importantly, why it is happening, then you need to become familiar with the Austrian Business Cycle Theory (ABCT). Texts to study include those by: Von Mises- Human Action, Socialist Economy Reisman- CapitalismRothbard- What have they done to our MoneyHazlitt- Economics in One Lesson

The Hazlitt is a very easy read which covers some important lessons in economics, while the others are more technical and reveal the precise details of the troubles that presently vexate you.

The troubles in the Eurozone were not the result of US "speculators". They are the direct result of the interferences on the economy of Euro governments, along with the resulting distortions and now, accelerating dislocations.

I learned to trade when I was in Switzerland. What helped to understand, even the most arcane of the derivatives, was to imagine the village markets of my youth and remember all the permutations and negotiations and swaps and the action that would go on as people strove to attain what they needed. Funny how it was all done on promises and hand-shakes. Not much got written down.

Anyway, when I get stuck with a difficult trade always I try to think of an analogous transaction at the village markets or even in Apia. If I can't do it and if I can't understand the trade, then I won't go ahead. That's a rule. If I can't work it through and understand the deal, then there is no deal to do and I won't do it.

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I wrote up a little about speculation and hedging because I don't think Andrew understands what he is writing about. His first attempted definition of speculation was actually a description of a sub-type of short. Andrew subsequently came up with another definition, this time of the word "speculate". It wasn't the same as what he started off with. He clearly doesn't know the business of finance or the topic of economics either, let alone trading.

ECONOMIC COLLAPSE! OF COURSE!: YOU DON'T HAVE TO BE CLEVER TO REALISE THE CAUSE. IN THE MIDDLE AGES THEY CALLED IT USURY, WHEN IT WAS ON A SMALL SCALE. THEY TRIED-UNSUCCESSFULY TO OUTLAW IT. NOW YOU SEE IT ON A MASSIVE WORLD SCALE; PRINTING PIECES OF PAPER AND CHARGING INTEREST (money that does't exhist)ON IT. USURY!! WIPE IT OUT, STOP THE MISERY.

WE BICKER AND WORRY ABOUT HEDGE FUNDS AND STOCK MARKETS; A 5% CUT IN WAGES, WORRY ABOUT WEATHER WE SHALL HAVE A NICE PENSION.HALF THE POEPLE OF THE WORLD LIVE IN 'HOLES IN THE GROUND' WITHOUT A DROP OF CLEAN DRINKING WATER,NO ELECTRICITY, NO NORMAL WHOLESOME FOOD, NO SHELTER. WHAT IS WRONG WITH US? NOT THEM,......US? JUST LIKE LIVING ON BORROWED MONEY, WE ALSO LIVE ON BORROWED TIME.

"Spain, as with the rest of Europe, has an essentially socialist political and economic system. This means it suffers from, and will continue in increasing measure to suffer from, the results of the insolvable socialist calculation problem"

I find it funny the comments from USA commentators that point their finger at EU/Spain and tell us that all this, is fault of the state protectionism, the socialism etc, that takes us from cradle to the grave by the hand.

Well, in case you didn't noticed, or you are trying to set aside that huge detail, ALL the northern countries of EU have stable economies and are not near any crisis. By a fantastic coincidence, those are also the countries where the citizens are more protected by the state and where the social security system provides more benefits to their citizens.

These countries are well, because of 2 simple things. First, the state invests in the citizen, Second, those countries are the ones where there is the least difference in the all world between the very rich and the very poor (in fact they don't have very poor).

So, it's easy to see that the way to go to fight the crisis is better distribution of wealth, not a greed driven society like the USA commentators want to make us believe.

First, I'm not a USA commentator. Had you actually had the ability to comprehend what you read you'd have understood that I am from the Pacific, not a part of the USA and not a USA territory either. {Then again, your comment confirms you as a low racist. Notice how you smear me- always by race....Moroccan, American...forigners you dislike. Shame on you.}

Second, despite your assertions the fact is that ALL of the northern countries of the Eurozone are in desperate economic trouble, just as are the PIIGS to whom they are tied by unrepayable loans (just watch them each default). The northern economies are in recession and their banks are insolvent (especially the ones that managed to expose themselves to the PIIGS-p check out the French ones in particular). I doubt the Euro will be around in 5 to 7 years (at least in its present form) as an exchangable currency due to the actions being taken by European politicians and central bankers right now. As lairy as I am of the USA economic situation, at the moment it is a better bet than the Eurozone. Safest places of all are in Asia, the BRICS, Oceania and the lucky country, Australia.

Third, the socialist political system you praise has already failed. Now comes the economic fall-out from years of socialism and eventually collapse. You are in the process of experiencing the bills falling due now and we are watching the futile exercise of your political leaders trying to postpone the due date. The longer things go on as they are, the bigger the problem will become and the more difficult the prevailing conditions in Europe.

Don't expect the rest of the world to pay you to continue living in the style to which you have become accustomed. As I've stated already, get ready to really work to survive. You have big debts to pay. You can thank your European socialism for that.

Always remember that it is impossible to consume more than is produced over time. Burdening the productive with the requirement to support the social ballast of the non-productive is unsustainable. It's not an "investment" to consume wealth like that.

You seem to be having trouble seeing the bleeding obvious. Luckily for me, there are plenty of people like you around. I can unload plenty of your own rotten taro back onto you, which you'll buy at full price, all the while maxing out your line of credit (govt guarateed of course).

By the way, it is clear you have limited or no expertise in generating wealth. You certainly are not qualified to be commenting about other peoples wealth. Anyway, other people's wealth belongs to them, not to you. The distribution of which you speak is theft. Best policy is to avoid it.

"The socialist political system you praise has already failed. Now comes the economic fall-out from years of socialism and eventually collapse."

You really believe that...? I think what went wrong in the world is the neoliberal or capitalist political system, this policy was the one who led us to this impasse and now prescribe the same wrong medicine over and over again, but the only thing that does is make us more sick. You say I'm a low racist... absolutely NOT !!!, I love all races and colors... all races. In any case, I don´t want to convince you about nothing and this speech become eternal. I wish you the best luck to you and all the readers.

It's not a matter of what I believe or even what I want. It is a matter of recognising the reality that surrounds.

Europe operates on an unstable mixed economic system which has devolved further and further into socialist rationalisations and adventurism. The costly results of socialism are just starting to be widely experienced. You don't have to take my word for it, just watch things unfold. The next FY is going to gouge the guts out. That will be a harbinger of what's to come. It is even more serious than Japan's lost decade. Unfortunately, ordinary people will suffer.

You don't appear to appreciate how far away from capitalism or free markets Europe really is. For example, the European monetary system is completely nationalised and has long since descended into the irresponsible hands of state. The Euro is not an 100% asset based currency, rather a fiat artifice, completely a creature of government compulsion and coercion. An economy based on statist funny money is not capitalist or is not free. It's a distorted mix up on its way to a necessary failure. Unfortunately, ordinary people will suffer.

The solution to Europe's problems are a complete reversal of political and economic direction. That would require the thorough understanding of the lessons of the Austrian School of Economics (check out the books I mentioned previously for a good start in that direction). What you do not need is the same poison as that which you have been addicted to. That is, you do not need yet more socialism. It has never worked and it never will.

Racism: Oh yes you are! Go back and read your comments again. You are swift to employ racial slurs. Just beneath the surface it lies- an itch that demands a reflexive scratch... subconscious or not, there it be found.

There was a crooked man, who walked a crooked mile;he found a crooked sixpence upon a crooked stile.He bought a crooked cat, that cought a crooked mouse; and they all lved together in a little crooked house.

The(captailist)USA purports to be the richest,most prosperouse country in world. But this is erronious; 40 millien(look close nany more) poeple their live beneath the poverty line, and what one would consider a decent,dignified exhistance. So only PART of it (USA) can be attributed to the afforesaid. Do your sums boys!!

Tell you what; I'll be a bloke and get 10 poeple to deposit £1000 each with me, I'll pay them a few quid interest. I can now lend 10 lots of £1000 and charge interest, brill! I'm greedy now and want to make more money, so I'll lend 1000 lots of £1000 and charge interest. Oh, but but how will you do that? says he; well...I'll just PRINT more money. They call me BANK

IMF = International Monetary Fund. It is yet another socialist banking creature. It is a creation of government and central banking. You can look up the defined legal ownership and debate the intricacies of that should you wish. However the fundamental question that you should be asking about is who controls it and what do its acts accomplish.

Note: You have absolutely no control over it in any way shape or form.

Interestingly you also have no control over the actions of those who rule over you in government. Thinking that the act of making a mark on a scrap of paper once every three or four years gives one "control over government" is the height of the imbecility that the myth of representative democracy relies on.

The very best thing you can do to understand what is happening to you and what your future is going to look like is to read and understand the works of the Austraian School of Economics. Start with henry Hazlitt's, "Economics in One Lesson". Move on to Ludwig Von Mises, "Human Action" and "Socialist Economy." Read Professor Reisman's "Capitalism." From there you are ready to plan your future within the threats and contraints that ARE going to be present. The difference between you and most others will be that you will know and understand the processes unfolding around you and will be in the best position to successfully deal with them.